Washington State Medicaid Rates Ruled Too Low

In a potentially precedent-setting decision, a federal judge has ruled that the Medicaid rates Washington state pays to hospitals are inadequate and illegal.

The ruling by U.S. District Judge Thomas Zilly gives hospitals their first legal victory since the U.S. Supreme Court last year allowed health care institutions to sue states for higher Medicaid rates.

Similar lawsuits are pending in at least a dozen other states, said attorney David Bennett, who represented 10 hospitals in Washington state that sued over the state’s Medicaid rates.

In Los Angeles, Orthopaedic Hospital and the California Assn. of Hospitals and Health Systems are suing the state of California in federal district court to compel a higher Medi-Cal reimbursement rate to hospitals for outpatient services, said Lori Aldrete, spokeswoman for the hospital association. She said California hospitals are reimbursed, on average, only 55% of their cost of providing outpatient care to Medi-Cal patients. Attorneys at the association said they are not sure whether the Washington ruling will affect the California case.

Zilly’s opinion, issued July 3 but not publicized until this week, will be followed by a final order next week.

Bennett argued that the state’s Medicaid payments are unreasonably low and result in a “hidden tax” on patients with private insurance, who are charged more to make up the balance.

“This is going to make the state pay its fair share,” Bennett said Wednesday.

Jim Peterson, who oversees Washington’s Medicaid program, said the state already is paying its share. He said Zilly’s ruling will only contribute to rampant health care inflation and reduced access for poor people.

Peterson said the state is awaiting Zilly’s formal order before deciding whether to appeal it to the U.S. 9th Circuit Court of Appeals.

The state Medicaid program for in-patient hospital care in 1990 paid out $275 million and provided for an average of 6,700 hospital patients a month.

Peterson and Bennett estimated that the state pays an average of 80% of hospital costs. Bennett contended that this was not reasonably meeting the financial needs of many hospitals.